Thursday, January 8, 2009

Merit Pay or Bonuses. Goals or Quotas.

Legal experts have speculated that the flagging economy will push law firms to finally abandon the costly lockstep compensation systems they have clung to for years.

The first signs of that sea change are appearing.

Morgan Lewis & Bockius informed associates on Monday that 2009 bonuses will be merit based, as opposed to an established amount given to those who billed at least 2,000 hours. A memo sent to attorneys, which was posted on the legal blog Above the Law, laid out several criteria upon which the bonuses will be paid.

"In deciding on bonuses, we will look at the entire picture of an associate's contribution, including level of engagement, efficiency and value in serving clients, excellence, results achieved, contribution to our culture, participation in our programs, and other factors," the memo reads. Associates will still be expected to bill 2,000 hours, although that won't be a "hard-and-fast requirement," according to the memo. Achieving 2,000 hours won't guarantee that associates receive a bonus, nor will falling short of that number mean associates won't get a bonus, the memo said. However, the firm will give "substantial weight to the level of engagement in awarding bonuses."

Officials at Morgan Lewis declined to comment further on the issue.

It's not yet clear what 2008 bonuses will look like for associates at the firm. In October, firm leaders announced that bonus decisions would not be made until some time in January. Those announcements have yet to be made.

Critics of lockstep compensation — be it salary increases or bonuses — have said that the reluctance of law firms to diverge from the legal industry's established pattern has allowed compensation to get out of hand in recent years. Firms have been able to absorb the escalating attorney compensation in flusher times, but the weak economy has highlighted the problem, they say.

Law firms are already in cost-cutting mode. In addition to reduced bonuses in many instances, a number of law firms are freezing associate pay in 2009. Those firms include Orrick, Herrington & Sutcliffe; Latham & Watkins; Sheppard, Mullin, Richter & Hampton; and DLA Piper.

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